tv Nightly Business Report PBS February 22, 2013 7:00pm-7:30pm PST
on some items, and promoting value meals. but higher payroll taxes are only part of what's holding back spending. prices at the pump are up nearly $0.50 in a month. >> we are a driving economy. most people drive to their place of work. and so they've got sort of a secondary tax, in addition to the payroll tax increase that they've experienced as well. >> reporter: wal-mart is adjusting by stocking its shelves with lower-priced items, and smaller sized packages. retailers fear the pressure on consumers could get worse if a trillion dollars in across-the- board government spending cuts hit march first. that would be right at the start of the spring selling season. >> i think we will see promotional activity and markdowns become more commonplace. i think the key takeaway here is that we could be looking at a very difficult time for retailers to be raising profitability and expanding margins in this environment. but even in a tough environment there will be some winners. in the retail and restaurant
categories, hottovy sees two firms that could thrive: >> our top picks are costco and amazon. we think that they will be key beneficiaries of either a trade out or a trade down among consumers. >> reporter: next week is a big one for retail earnings. over a dozen chains will report quarterly numbers, including macy's, target, gap, and jcpenney. but it's the sales outlook for the current quarter that investors will focus on. they want to know which stores are seeing a drop in traffic, and whether they've had to ramp up promotions to boost sales. erika miller, "n.b.r.," new york. >> tom: while consumers are feeling pinched, the federal government is next to cut back, and that could mean hurry up and wait at the nation's airports. the secretary of transportation today warned that cuts at the federal aviation administration thanks to the sequester, could translate into an hour and a half wait at security for air travelers next month, and canceled flights. darren gersh has more on the impact next month's planned automatic government spending cuts and layoffs may have on the economy.
>> reporter: the economy is about to get a pain in the sequester. the f.a.a. is going to see a $600 million cut, meaning 47,000 employees will be furloughed for one day per paycheck, maybe two. peak travel to key cities could be snarled by late march. smaller airports may have to shut down altogether. you can find the list on the department of transportation's website. the administration denies these announcements are part of a campaign to pressure house republicans to change course and head off the cuts. >> the idea that we are doing this to create some kind of horrific scare tactic is nonsense. we are required to cut a billion dollars. and if more than half of our employees are at the f.a.a., the f.a.a.-- there has to be some impact. >> reporter: and the f.a.a. cuts don't include potential delays from cutbacks as t.s.a. furloughs employees. the defense department has
already informed 800,000 workers they may be furloughed and face a 20% paycut as it struggles to find a way to cut $46 billion from its budget. adding it all up, the president warns the picture is not pretty. >> the overall impact to the recovery will be to slow down the recovery. and not only may there end up being direct job loss, but, because the economy is softer, it also means that we're not going to be driving down unemployment as quickly as we should. >> reporter: republicans say they have proposed other spending cuts to avoid the sequester and are unwilling to accept new tax increases to head off the march first deadline. darren gersh, "n.b.r.," washington. . >> chairman of macroeconomic advisers joins us tonight from st. louis. you have been looking at the sequester and fiscal cliff for man moons, joel.
a pay cut for hundreds of thousands federal employees april 1. that sounds pretty substantial. is it, to the economy? >> well, first of all, it's substantial to the people affected, no question about that. in terms of its impact on the economy, we recently did a study that suggested if the sequester goes into full effect march 1, want impact will be to knock .6% off of growth this year. that is if we thought the economy was going to grow at about 2.6% without the sequester, that will be reduced to 2% with the sequester. >> tom: for this year, we're talking $85 billion potentially taken out of the growth of government spending between march 1 and the end of september and a $4 trillion budget. proportionally for median household income that's the equivalent of $1,000 out of a $50,000 income being taken out. how can that impact economy so much? >> well, it's-- it amounts to something like an 8% cut in the
level of government services, other kinds of government expenditures, and at the margin, that's enough to have a noticeable impact on economic growth. now, remember, it's 80-odd-billion over the second half of the year. at an analyzed rate it's almost twice that amount. >> tom: right. so is it-- >> and of course the sequester will go up to an even larger number of course in the following years. >> tom: it's supposed to go up to $100 billion the subsequent nine years. >> that's correct. >> tom: is it the size of the cutsef year over the method, the across-the-board cuts? >> well, in terms of the macroeconomic impacts of this, they're not catastrophic. the economy can absorb this. my concern about these has to do with both the timing of them and the ability of the federal reserve to respond effectively to the slower growth in the economy. so these sequester cuts are
coming on the heels of three different tax increases that went into effect january 1. the expiration of the payroll tax holiday. a lot of people reading about that. the new tax on high-income earners that was part fiscal cliff negotiations at the beginning of the year. and some new taxes that are part of the affordable care act, also came in on january 1. so adding those three tax increases up, it's about a $200 billion increase in taxes that's already working to slow the economy, and then if you pile on top of that the fiscal drag associatedly with the sequester, you're putting a lot of restraint on an economy that's still struggling to recover from the legacy of the great recession, and at a time when the federal reserve is not well positioned to respond aggressively to the slower growth by lowering interest rates further. >> tom: they can't go further than 0 in terms of the federal reserve, which is where they've been locked. >> but the federal reserve just in january began to have an open diminish at least at its meeting, when is the time going to be right to stop buying
bonds, stop doing the quantitative easing. you have a fiscal as well as monetary issue. >> and that tells you that you-- the federal reserve would be very reluctant to consider doing additional quantitative easing in response to this new fiscal drag. so they are hemmed in, in that regard. now, i also am not thrilled about the indiscriminate nature of these cuts, across the board, without careful consideration about which programs are being targeted for reduction. clearly, a much more sensible approach would be carefully analyze which government programs pass a cost-benefit test and go after the ones least effective. but in this sort of meat cleaver approach snow such careful analysis is done. >> tom: and certainly deadline approach as well with the week to go before the sequester talks effect. we'll leave it there in st. louis. joel prakken with macroeconomic advisers. still ahead, tonight's "market
monitor" sees promise from the american housing market and chinese shoppers. u.b.s. strategist david lefkowitz joins us. a comeback for wall street today, thanks to last night's stronger than expected results from hewlett-packard and its improved outlook. h.p. shares were the dow jones industrial average's best performer, up 12%. overall, the dow rose 119 points, the nasdaq added 30, the s&p up 13 points. this week, the major averages were split, the dow rose a fraction. the nasdaq lost nearly 1%, and the s&p was down 0.25%. >> tom: this april will be three
>> tom: this april will be three >> a developing story, the governor in washington state, the office says the leak has not posed an immediate public health risk. the governor's office says the leak has not been stopped. a different story from a different energy source. this april will be three years since the deepwater horizon caught fire, sank and untapped the nation's worst oil spill. on monday in new orleans, the civil trial pitting the u.s. government and gulf coast states against b.p. is due to begin. ruben ramirez has a preview of the case and the possibility of a last minute deal. >> reporter: nearly three years after a rig explosion killed 11 people and spilled four million barrels of oil into the gulf of mexico the u.s. government and b.p. are set to square off in a louisiana courtroom. b.p. has a history of settling civil cases before or during trial, so an eleventh hour deal could still be reached. the justice department and gulf
states are considering offering b.p. a $16 billion deal, that's nearly three times what b.p. had hoped to pay. for it's part, b.p. says: >> we have always been open to settlements on reasonable terms, faced with demands that are excessive and not based on reality or the merits of the case, we are going to trial. >> reporter: if there is no settlement over the weekend, well owner b.p. will be joined by rig owner transocean and halliburton, the cement services provider on the well. on the other side will be the justice department, several gulf coast states and other plaintiffs. the first phase of the trial will be focused on determining the causes of the deepwater horizon disaster, who should be held responsible and to what degree. the second phase of the trial is scheduled for september. the big question there is the number of barrels of oil spilled, it's important because that number will determine how much b.p. is liable for under the clean water act. the government's official
estimate is 4.9 million barrels. for its part, b.p. believes the number is closer to 3.1 million barrels. saying quote: "based on our analysis so far, that the governments public estimate is simply wrong and overstated by at least 20%." the judge will also have to weigh the spill's far reaching impact, it prompted a six-month band on oil and gas drilling in the gulf, affected the coastlines of five states and disrupted the livelihoods of fisherman and those who work in the tourism industry. ruben ramirez, "n.b.r.," washington. >> tom: apple has lost its first court fight that's ultimately over how it could spend its stash of cash. the company was sued by a hedge fund over its planned shareholder vote to prevent the company from issuing preferred stock. david einhorn's firm greenlight capital won a court order later today preventing apple shareholders from taking a proxy vote. the hedge fund manager argued
the vote bundled together separate issues. among the issues, allowing a ban on preferred shares. apple argued its proposal would not specifically ban issues. apple has $40 billion in cash and short-term investments as of the last quarter. it pays about $2.5 billion in regular quarterly dividends. brian white is with us, an analyst with topeka capital markets in new york. brian, this case of technically about bundling these votes into one vote but it's really about apple dividends, isn't it? >> exactly right. so, you know, they had a couple-- they had three different proposals and within was a check box for proxy, one was blank check preferred. he got them on a technicality. he won. the bigger picture is david einhorn wants to see apple cash with shareholders in a much bigger way and i think that's what we're going to see. >> tom: does it ultimately
result, give him more credence to go to apexpel say return some of that stash of cash to shareholders? >> you know, david put together a very powerful conference call with a slide presentation yesterday. they really outlined what apple needs to do with its cash balance, and he said apple is very innovative in a lot of different areas. one area they're not innovating is with their balance sheet, and with their cash balance. he came up with a new instrument, a new idea called perpetual preferred stock, which he called i-pref. that would be about a $50 billion issuance of preferred stock to existing shareholders and yield 4%. apple wouldn't have to dish out any cash, other than the $2 billion in dividends a year, and shareholders would get a nice-year-old. >> tom: so what was the response or what do you anticipate the response to come from apple? >> they're going to have their shareholder meeting next week.
last year, they initiated their first dividend and stock buyback in march. and i would expect something to come out relatively soon, probably in the march time frame regarding an increased dividend and a bigger buy-back. i think investors agree with what david is proposing. again, it doesn't have to be his exact idea of the i-pref or perpetual preferred stock but i think giving more cash to shareholders is the point he's driving home. he's in the driver's seat after today's win. >> tom: what would you like apple to pay? >> i don't think there's any reason they can't pay $3.75 to $5 a quarter in cash dividends. that would give them a dividend yield on the high end of over 4%. i think david proposed something yesterday that would be slightly over $5 a quarter. so it would give a nice dividend yield. and i programmedded a backbuy of
100 billion over five years. >> tom: brian, are you a shareholder of apple? >> i do not own the stock. >> tom: brian white talking apple and dividends, a tech analyst at topeka capital markets. >> tom: there's a new treatment option for breast cancer patients: the u.s. food and drug administration today approved kadcylah. that's a drug made by roche. it is meant to help patients live longer by combining an existing cancer drug with a chemotherapy treatment. but getting that help won't be cheap: the treatment runs just under $10,000 a month. it will be on the market in two weeks, and roche has a patient
assistance program to help pay for it. >> tom: stocks staged a rally on the heels of some encouraging earnings reports with the indices rebounding from their worst two day sell off this year. the s&p 500 gains were seen from the opening bell, with the index building upon that buying just after noon eastern, and into the closing bell. it finished higher by 0.9%. volume was light though. 682 million traded on the big big board. just over one and a half billion moved on the nasdaq. yesterday's stock sector losers were today's winners. the materials, technology and financial sectors regained yesterday's losses, and then some. each were higher by more than 1%. one of the earnings reports that brought buyers out was hewlett- packard. it's latest quarter was stronger than expected and last night c.e.o. meg whitman said she felt good about the rest of the year. shares responded with a 12.3% rally. volume was very heavy, more than five times average. the buying takes h.p.q. shares to their highest price since august.
hewlett-packard's optimism helped a couple of other big technology firms counting on the computer market. intel was up 0.8%. microsoft gained 1%. semiconductor texas instruments, also got a boost thanks to raising its quarterly dividend, and increasing its stock buyback plan. shares rose by 5.2%, to finish just below a 52 week high. the other earnings report traders pointed to as encouraging was from a.i.g. except for the impact of super- storm sandy on its property- casualty operations, business was better than expected. the quarter marked that last period the u.s. government held a stake in a.i.g., stemming from its bailout. shares rebounded 3.1% on heavy volume. teen retailer abercrombie and fitch got through the holiday season with less discounting, helping improve its quarterly profit margins. but that was last quarter. the store's outlook was cautious for this quarter with árter performance later in the year. but shareholders and traders were focused on the here and now, sending shares down 4.5%. however, earlier this week, shares traded at a nine month high. four of the five most actively traded exchange traded products
were stronger with the japan fund up 1.6%. the s&p 500 volatility note fell more than 3%. and that's tonight's "market focus." >> tom: u.s. housing and the chinese consumer. those are two bright spots for tonight's "market monitor." david lefkowitz is senior equity strategy at u.b.s. wealth management. david, let's begin here at home. what gives you confidence in u.s. housing?
>> tom, there's a couple factors that we like about u.s. housing. first is that there's still a fair amount of pent-up demand for housing. housing starts are running at levels still below normal. normally we'd see about 1.5 million starts. we're at 900,000. plus interest rates are very low making affordability high. we think the combination of pent-up demand and affordability will help propel the housing market. >> tom: what about over in china with the consumer there who is kind of been pushed and pulled between stim lutz and pulling back the stimulus from beijing? >> that is an area that we do like. besides the long-term secular growth of rising wealth in china, we also now have a new leadership in place in china and that's given more confidence to the chinese consumer, and we think we're going to see continued growth in that parent of the global economy. >> tom: you've described this as a barbell approach.
on one end the united states, on the other end you like china. that's leading you to technology. xlk is the ticker symbol. why do you like technology if you like the u.s. and china together? >> well, we like the technol sector for a number of reasons. first we do think you're going to see a pickup in global growth. tech companies are very linked to the global economy. a lot of the technology companies rely on corporate capital spend. so that's where we think we'll seen inflection point there. valuations for the tech sector are the lowest they've been since the mid-90s. the sector trades at a petraeu p/e level. everybody knows about the mobility story but there are other things happening in the enterprise part of the technology center always propel growth going forward. >> tom: you also like the
industrial sector. i suppose that makes sense with the rebound in china. it's had a nice run lately. what do you expect out of industrials over the next year or so? >> for industrials, there's leverage to a pickup in capital responding and i think the pickup in merger acquisition and activity as we've seen is an indication that corporations are beginning to redeploy some of their cash, and i think we're going to see that come through in more capital spending, valuations are also reasonably attractive, and within the industrials area, one of the areas that we like especially is transports, where you do see companies that have very good pricing power, and that should be supportive of profit margins as we go forward. >> tom: just curious, any subsector,arily, trucking, you get more granular? >> within the air freight areas that is where i think you'll see the greatest amount of pricing stability. and those are some of the places that i would look for?
>> tom: all right, that certainly speaks to your global growth idea. if do you have any positions in the e.t.f.s we used to illustrate your sectors? >> no, i don't, tom. >> tom: our friday market montop going global is de, with ubs wealth management. monday on "n.b.r." is the 30-year bull market in bonds, coming to an end? our "nbr-u" partners at wharton say it depends on who you ask and how flexible your timing is. we talk with professor franklin allen. you can read his work online, head to: www.nbr.com and look for the "nbr-u" tab. compromise may be a dirty word these days, especially in washington, with one week left before the sequester takes effect, cutting government spending. this week, lou's been thinking about deal-making. here's author and educator lou heckler. >> as we witness the give and take in washington, dc, these days, i am reminded of an article i read recently in the washington post about the actor dustin hoffman.
like many people who perform in front of the camera, he also longed to direct a film. he has done so with a film called "quartet." in the article, he talked a lot about how that side of the camera taught him a lot about compromise. he has never been known for being a compromiser. he is a talented and exacting performer who has wowed us in films like the graduate, tootsie, and rainman. now, as a director, he had to make a lot of people happy, and that takes a talent for compromise. i talk to a lot of mid-level managers in my business and they tell me that many younger people in the workforce need some training in this area. let's face it: we've often made compromise a dirty word. it seems to mean giving in, or worse, giving up. but the dictionary says it can also mean, to agree to reach an accord. business writer tom peters talks about great companies having loose/tight principles: tight commitments to purpose and performance, but loose, as in willing to adjust, when it comes to execution. i know its tough, but two good questions to ponder this week are: where do i need to be a little less rigid and still get the job done? where do i need to compromise?
two months after 20 schoolchildren and 6 adults are gunned down at sandy hook elementary school, a national conversation about gun control rages on. how can we prevent another mass shooting? but some communities face a relentless reality of gun violence every day. >> please, please stop killing our babies. >> bay area residents demand action. >> stop the violence! >> to something! >> what are the effects and how can it be stopped?
plus oakland's controversial new police consultant bill bratton as he prepares to tackle violence on the streets. coming up next. good evening. welcome to a special edition of "this week in northern california." i'm jamie floyd. the shootings at sandy hook have sparked a new national dialogue about guns. pbs has dedicated much of this week's programming to exploring the alarming rise of gun violence around the country